US retailer Macy's tech expense cut likely to hurt Indian IT giants

In a development that may hurt IT companies, US retailer Macy’s has informed its tech vendors of a 10-15 per cent cut in the IT budget for this year amid fears of a recession. The company’s decision may impact new projects, which are likely to get delayed, said sources in the know.

Among the IT players that work with Macy’s are Accenture, Cognizant, Tata Consultancy Services (TCS), and Infosys. Macy’s is among the top 5-10 clients of these companies.

“They (Macy’s) have written to all their vendors that they are doing this to control cost. The discretionary budget will see an impact of 10-15 per cent. The current projects already underway will continue but the new projects may get impacted,” said a source from a company that received Macy's e-mail.

An e-mail sent to Macy’s did not receive any comment. Similarly, e-mails sent to Accenture and TCS did not elicit a response. An Infosys spokesperson stated: “We do not comment on client engagements.”

Rajesh Nambiar, CMD, Cognizant India, too, refused to comment on the issue.

Macy’s is among the first US retailers to announce spending cuts. Even as the recession debate goes on, several US retailers have seen inflation hurting their profitability and sales. Earlier this week, Walmart cut its quarterly and full-year profit guidance because of inflation and customers avoiding discretionary spending.

Canada’s Shopify announced a 10 per cent in its employee headcount as it faces a reduction in online shopping sales. The stock prices of many retail players, such as Target, Macy’s and Khol’s, have been down. 

Though the recent management commentary from top IT services providers exuded confidence, there appears to be pressure ahead — either in verticals or geographies.

TCS has said that the growth driver for the company this financial year will be the US. For Q1FY23, the revenue from the UK was down 3.3 per cent sequentially, though it grew YoY.

Infosys, which upped its full-year revenue growth guidance to 14-16 per cent, noted there have been discussions on a recession and interest rates going up and it also sees pressure on segments like the mortgage businesses within the financial services sector.

Cognizant, which announced its Q2 numbers on Thursday, lowered its annual revenue guidance. The management also said that though the pipeline was strong, the company is monitoring the macro-economic environment closely.

“We've not seen any significant slowdown for IT services demand. That said, as we serve some of the largest clients in the world, we are aware that should they see slowing earnings growth, non-essential projects or those with longer return on investment (RoI) may be paused,” said Brian Humphries CEO, Cognizant.

If more clients announce spending cuts, it would hit the industry hard, which has seen its profitability getting impacted due to supply constraints.